Bank Debt Restructurings and the Composition of Exchange Offers in Financial Distress

ABSTRACT

This article examines the relation between bank debt forgiveness and the structure of public debt exchange offers in financial
distress. I find that the structure of exchange offers and the likelihood of an offer's success are significantly related
to whether the bank participates in the restructuring transaction. Exchange offers made in conjunction with bank concessions
are characterized by significantly greater reductions in public debt outstanding and significantly less senior debt offered
to bondholders. Overall, the results suggest that the structure of a firm's public and private claims significantly affects
the firm's ability to modify its capital structure in financial distress.